Your home is more than the place where you raise your family, work, play, and rest. It’s an investment, and sometimes change is needed to leverage it best. After all, life isn’t the same since you first took out a mortgage on your home. The economy changes, along with your personal finances. If your mortgage no longer suits your needs, refinancing allows you to secure a new one that works better for your current situation.
St. Louis Mortgage Refinance
St. Louis Mortgage Refinancing: What is it and how does it work?
What does it mean to refinance a home?
When you refinance your mortgage on your home, it means that you trade in your existing mortgage for a more current one. This may include a new principal or a lower interest rate. The lender will then use the newer mortgage to repay the old one. This leaves you with only one loan and one monthly repayment.
Refinancing can be done for many reasons, including to get cash from your home equity, lower your monthly payment, and shorten loan terms. Refinances can also be used to add another person to or remove another person from the mortgage, as in cases of marriage or divorce. Your mortgage broker can provide guidance in these circumstances.
How does refinancing a home work?
Although simpler than home buying, the refinance process involves many of the same steps. It can be difficult to predict the exact length of your refinance, but it usually takes between 30 and 45 days.
Starting the Application Process
The first step is to contact a lender. He or she will ask for the same information that you provided when you purchased the home. To determine if you can repay the loan, your lender will look at your income, assets, and credit score.
They may request the following documents:
- Two most recent pay stubs
- Two of the most recent W-2s
- Two of the most recent bank statements
If you are married, your lender may also require documents from your spouse. If you are self-employed, you might be asked for additional income documentation. It is a good idea also to keep your tax returns from the past couple of years.
You do not need to stick with your current lender to refinance. You can choose another lender to pay off your existing loan, such as a USDA loan or VA loan. Shop around, and compare the rates and fees of each lender, as well as their availability and client satisfaction scores.
Locking in Your Interest Rate
Once you have been approved, your lender will ask if you want to lock your rate so that it doesn't change prior to the loan closing. Be aware of the options in your loan program.
Rate locks can last between 15 and 60 days. Rate lock periods are dependent on several factors, including your location, loan type, and lender. You may need to extend the mortgage interest rates lock if your loan does not close within the lock period. This could cost you money.
If rates are acceptable at the time that you apply, then you should lock your rate. If rates have been dropping, you have the option to float the loan. This means you would proceed without locking in your rate and let the rate fluctuate with the market until closing. Of course, there is a risk that rates could increase during this time instead of decrease. If you lock in your rate and the market rate drops, you may be able to take the lower rate with a floating-down option.
After you submit your application, your lender will begin the underwriting procedure. Your mortgage lender will verify your financial information during underwriting to ensure that it is correct. They’ll also review your property details as provided by a home appraiser.
Appraising Your Home
You must obtain an appraisal just like you did when you purchased your home. The appraisal is ordered by your lender, and it is required to estimate the value of your home. This is an important part of the process as it will decide what options you have. For example, if you are refinancing to get cash out, the home's value will determine how much cash you can get. The value of your home could have an impact on whether or not you are eligible for certain mortgage loan options or private mortgage insurance.
An appraiser will visit your property to give you an estimate of the home's worth. To make a great impression, prepare your home by tidying up and doing any necessary repairs. You might also want to keep a record of any upgrades that you have made to your home in the time you have owned it.
If the home's worth is greater than or equal to the amount of the refinance loan, then the underwriting process is complete. The details of your closing, such as your refinance rate, will be provided by your lender.
What happens if your estimate is low? You have two options: you can decrease the amount you wish to refinance, or you can withdraw your application. You can also do a cash-in refinance to bring cash to the table to obtain the terms of your current deal.
Closing on Your New Loan
After the underwriting is complete and your home appraisal has been completed, it's time for you to pay closing costs and close your loan. Your lender will send you a document known as a Closing Disclosure a few days prior to closing. This is where you will see the final numbers of your loan.
Mortgage refinance closings are faster than those for home purchases. The title and loan holders, as well as a representative of the lender or title company, attend the closing.
You'll review the details of your loan and sign the documents at closing. You'll be responsible for any costs associated with closing that weren't included in your loan. You'll get the money after closing if your lender owes it money, such as a cash-out refinance.
After you close on your loan, there are a few days left before you lock yourself in. You can cancel your refinance any time before the 3-day grace period expires if something happens.
Should I refinance my mortgage?
Refinancing your mortgage can be beneficial in many circumstances. Here are the top reasons why people choose to refinance:
Modify the term of your home loan.
Refinances are a great way to reduce the loan term and save interest. Let's say that you have a 30-year mortgage but are able to afford a higher monthly mortgage payment. To get a lower interest rate and lower overall interest, you might refinance to a 15-year term. To lower your monthly payments, you can talk with your loan officer to extend your loan term.
Reduce your interest rate.
Interest rates change all the time. Refinancing may be a good option if mortgage rates are lower than they were when you took out your loan. A lower interest rate will reduce your monthly payment, and you'll also pay less interest over your loan's life. All of which are a great reason to check on your refinance rates and possibly save money, a key step in possible debt consolidation or paying off credit cards.
Modify your loan type.
A different type of loan product could be beneficial for you for many reasons. You may have an adjustable rate mortgage (ARM) that you borrowed to lower your interest, but you’d like to refinance the ARM to a fixed rate mortgage at low rates. Or perhaps you have finally gained enough equity to refinance an FHA loan into a conventional loan, without having to pay for private mortgage insurance.
Cash out your equity.
A cash-out refinance allows you to borrow more money than you owe on the home, and then you can keep the difference as cash. You may be able to borrow more than you owe on your home, consolidate debt, or use it for other purposes if the value of your home has increased. You can borrow money from your home at a lower interest rate than with other types of home loans. However, a cash-out refinance may have tax consequences.
How much does it cost to acquire a St. Louis mortgage refinancing?
Refinance costs vary depending on many factors, including the value of your home and the lender you use. You can expect to pay between 2 and 6% of the loan's total value.
Refinancing may be a good option as you won't have to pay the costs out of your own pocket. This is especially true since the adverse-market refinance fee has been eliminated. You may be able to get a refinance with no closing cost. This means that you don't need to bring any cash. The closing cost will be paid over the term of the loan at a higher rate.
When is the best time to refinance?
When deciding whether to refinance, there are many factors to consider, including market trends, current interest rates, and your personal financial health, especially your credit score. To calculate your break-even point, you can use a mortgage calculator after taking into account refinance expenses.
It is important to understand how home refinancing differs with other mortgage options, such as a home loan modification or second mortgage. Refinance is different from a loan modification because refinance gives you a new mortgage rate, while modification changes your terms. Refinancing will give you a new mortgage that replaces the existing one you have with your borrower. This is a crucial distinction between refinancing and getting another mortgage or loan amount. You should not consider a modification if you are unable to refinance or need long-term payment relief. Modification can have a significant negative effect on your credit score.
Before you decide, it’s important to consider which would work best for your situation. If you’re unsure, call one of our home loan experts. Our specialists are proud to have a customer service rating of 4.92 out of 5 stars. We make it easy and walk you through every step of the process. Because an investment in you and your home is an investment in the entire community.